What to Do if Think Your Business Partner Is Violating Your Agreement

When a business partner appears to be in breach of your partnership agreement, the situation may feel both urgent and complex. Knowing your legal options and the best paths for resolution is essential to protect the business’s interests and your own rights. While each case is unique, several key principles and steps generally apply.

Breach of a partnership agreement can occur in many forms, such as failure to contribute agreed assets, acting outside one’s authority, misappropriating funds, or not upholding fiduciary duties, for example. The first step in response is confirming the specific breach and gathering solid documentation. Next, seek the advice of an attorney who can review your partnership agreement carefully to establish what provisions have potentially been violated.

It is generally advisable to find a resolution through the least adversarial means possible. Sometimes breaches arise from misunderstandings or miscommunications. Direct negotiation can result in corrective actions that preserve the partnership and your professional relationship.

If direct talks stall, mediation is an option. A neutral third party facilitates communication and guides parties toward a mutually acceptable resolution while avoiding the costs and hostility of litigation. Another option may be arbitration. Your partnership agreement may contain an arbitration clause, calling for an arbitrator to hear both sides and to issue a binding decision. If alternative resolutions fail, going to court may be necessary.

The end result of a partnership dispute will depend on the severity of the breach, the provisions of your agreement and the chosen resolution method. Potential outcomes include:

• Modification of Partnership Terms — The agreement may be amended to clarify duties, redistribute profits, or otherwise correct the underlying problem.
• Buyout — One party may buy out the other partner’s interest, resulting in an orderly transition and continued business operations.
• Dissolution — The partnership may be formally dissolved, with the business wound up and assets distributed according to the partnership agreement or applicable state law.
• Court-ordered remedy — In litigation, a court may order payment of damages, reform the agreement, require a partner to perform specific acts or mandate dissolution.

An attorney experienced in partnership disputes can provide advice tailored to your situation, help analyze your options, guide negotiations and represent you in mediation, arbitration or court proceedings as necessary. Going forward without qualified counsel risks making missteps that could harm your business interests or limit available remedies.

If you’re involved in a conflict with one or more of your partners in an Arizona business, the Law Offices of Donald W. Hudspeth P.C. in Phoenix can protect your rights and work to achieve a suitable remedy. To schedule a consultation, call 866-696-2033 or contact us online.